Total Asset Protection
Estate Planning
You have worked hard to accumulate your assets. You have plans for the future that include caring for yourself, your family and your community. For yourself, you want a great life, one that promotes your independence. For your family, you want to support harmony and self-reliance. For your communities, you want vitality and opportunity.
However, life is full of risks. Virtually every aspect of life includes risks that can defeat our wishes and erode our estates. Being alive is risky business! Not only do we need to protect against creditors and failed relationships, we also need to protect our estates from administrative costs and taxes. How do we provide for ourselves, our families and communities? One way is by protecting our assets from risks associated with the management of estates.
CREDITOR'S CLAIMS: A creditor may reach a beneficiary's interest in a trust only by first obtaining a court order. A creditor must first petition the court for such an order. Without a trust, the first time you learn of a creditor's action can be after the property has already been ceased.
If the trust document includes a "spendthrift" clause, which states that the beneficiary's income or principal is not subject to voluntary or involuntary transfer or assignment, the beneficiary's interest is protected from creditors. Unless trust assets are actually transferred to the beneficiary, those assets are exempt. When creditors are waiting, a transfer may never happen.
CHILDREN'S CREDITORS: Where trusts can be especially effective is in protecting your children. By keeping assets in trust, your children's creditors or disgruntled spouses cannot reach those assets. In addition, if you have a concern that your children lack the ability to manage their assets, a trust will protect the beneficiary by providing for competent professional management. If you use a trust for creditor protection, be sure to include both a spendthrift clause, and language that the trustee has discretion to determine when any payments will be made to beneficiaries.
ESTATE MANAGEMENT: Surveys have shown that the average inheritance is spent within eight months of receipt. You can provide that a beneficiary's assets remain in trust so that the beneficiary receives regular income payments and the trustee has discretion to spend the principal as needed.
You can define the standards to be used in making discretionary trust payments. Because we cannot anticipate every event in the future, many people use a clause which allows the trustee to postpone distributions to a beneficiary if the trustee determines that the beneficiary has substance dependency problems, or is unable to prudently manage their financial affairs, are subject to a creditor's claim, or subject to an existing or pending divorce proceeding. By giving the trustee discretion to postpone payments, the odds of the distribution being used improperly or contrary to your wishes are maximized.
SPECIAL NEEDS: If you have a beneficiary who is receiving on-going government benefits, you can use what is called a special needs trust for those disabled beneficiaries. For example, the beneficiary may be a developmentally disabled minor or adult. A special needs trust is fully discretionary. Its purpose is to provide a means for allowing funds to be used for a disabled beneficiary which will not interfere with government benefits being received by that beneficiary, such as Medi-Cal, SSI or services through a local regional center. These trusts are not required to contain Apay-back@ provisions, so the trust may provide for assistance during a beneficiary's lifetime, then can be distributed to others.
AVOIDING COURT COSTS: Trusts are also a great vehicle to minimize the administrative costs associated with court proceedings such as probate. Probate is generally required where the decedent's estate has a fair market value of $100,000.00 or more. Unfortunately, probate takes both time and money. Under the best of circumstances, probate takes a minimum of six to twelve months. Moreover, the fees in probate are set by statute. For a $500,000.00 estate, the executor's and attorneys' fees are $26,000.00, with additional filing fees and other costs boosting the total to over $30,000.00. This is money that could have been in the hands of your beneficiaries. Moreover, probate is a public proceeding which means that claims can be raised in the estate before any distribution is ever made to your intended beneficiaries. Until those claims are resolved, there will be no distributions. With probate the results are less certain. There may be unpleasant surprises, and for certain, distribution of assets will be delayed before getting to those who need them the most.
TAX AVOIDANCE: The other major source of erosion of assets is taxes. The federal estate tax system charges 46% of the excess over Two Million Dollars. Through the use of a family trust, a couple may preserve double that amount from taxes, or a total of Four Million Dollars tax-free to their family. Through the use of other kinds of trusts, it is also possible to further reduce estate taxes so as to deliver the maximum benefits to your beneficiaries.
TAKE ACTION NOW: The time to plan for protection from creditors, costs and taxes is before they are imminent. Once a creditor obtains a judgment against you, you are restricted as to the transfers of property out of your name. Without the proper documents, it is predictable that your estate will be subject to both probate costs and estate taxes. Using the right tools for total asset protection will preserve more of your estate for both you and your heirs.